The following CVP income statements are available for Old Company and New Company: Instructions (a) Calculate the

Question:

The following CVP income statements are available for Old Company and New Company:

Sales revenue Variable costs Contribution margin Fixed costs Operating income Old Company $400,000 180,000

Instructions
(a) Calculate the break-even point in dollars and the margin of safety ratio for each company.
(b) Calculate the degree of operating leverage for each company and interpret your results.
(c) Assuming that sales revenue increases by 20%, prepare a variable cost income statement for each company.
(d) Assuming that sales revenue decreases by 20%, prepare a variable cost income statement for each company.
(e) Discuss how the cost structure of these two companies affects their operating leverage and profitability.

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Managerial Accounting Tools for Business Decision Making

ISBN: 978-1118856994

4th Canadian edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly

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